Sterling receives a severe pounding

On a quiet day in US markets, John Authers looks at a sharp fall for the pound following a doveish report from Mark Carney of the Bank of England. Market expectations for UK inflation have been growing. Even as gilts have recovered ground lost after the Brexit referendum.

Transcript

JOHN AUTHERS: February the second is in the books. Here on Wall Street is the New York minute. We've had a very quiet day on Wall Street, which isn't surprising, because we have [INAUDIBLE] payrolls coming tomorrow.

But a lot of excitement over in London. This is what happened to the pound today, a very sharp fall after we heard from Mark Carney of the Bank of England, whose basic point was that he thinks the economy is going to do better than he was previously saying, but that inflation will be less of a problem than he was previously saying.

Now if we take a look at inflation break-evens for the UK, you can see that runs very directly counter to what the market was thinking. So it's not surprising you saw a sharp market response. If you look at the pound in a broader perspective, it's still not that it's post-Brexit referendum lows. But plainly, there is a remaining lack of confidence there.

Now if we take a look at how gilts have performed compared to treasuries over that period, you can see they have made up most of the damage that was done after the referendum. There is a belief in the markets that Brexit could still work out for the UK. But there is an underlying lack of confidence. That's why you saw the pound [INAUDIBLE] today. And that's the New York minute.